Arizona Supreme Court holds that a stipulated dismissal with prejudice of an agent-surgeon does not preclude a claim against the surgeon’s principal for independent negligence because the surgeon’s negligence was not actually litigated.

Several patients underwent surgery and experienced post-operative complications. The patients sued the surgeon, alleging that he negligently provided medical care. They also sued the hospital and the physicians group to which the surgeon belonged, alleging that they were vicariously liable for the surgeon’s negligence and independently negligent in the supervision of their surgeons. The patients settled with the surgeon, dismissed their claims with prejudice, agreed that they could not assert claims for vicarious liability against the remaining defendants, but reserved any independent tort claims against those parties. The hospital moved to dismiss the remaining claims as derivative of the surgeon’s negligence, and the trial court granted that motion, stating that independent negligence claims survived. The Court of Appeals affirmed.

The Supreme Court reversed, concluding that the settlement agreement did not bar claims against the remaining defendants for the independent tort of negligent supervision. First, the Court held that the remaining claims for negligent supervision were based on an independent breach of duty of care in administration and were not based on vicarious liability for the surgeon’s negligence. Second, the Court held that the dismissal of the surgeon with prejudice did not collaterally estop the patients from pursuing claims for negligent supervision because the surgeon’s negligence was never actually litigated and was expressly preserved by the settlement agreement. The opinion expressly abrogated portions of the Court’s earlier decision in DeGraff v. Smith, 62 Ariz. 261 (1945), and cases following DeGraff.